Just in time for Black History
Month, the nation enters a dialogue about race that could have
important socioeconomic
implications for generations of African Americans. At issue is
President Bush’s charge that the Social Security system is unfair
to African Americans because they do not live as long as whites
and cannot draw down on retirement benefits and that they would
do better financially if the nation embraced a privatized system
of individual accounts that can be invested in the stock market.

Bush’s History with Blacks

While there is a stark need for a plan of action addressing race-based
income and health disparities, of surprise to many is that President
Bush and prominent members of the Republican Party have introduced
this conversation.

After all, these are the people who have spent the last four years
providing tax relief for the wealthiest Americans while laying
the groundwork for dismantling the very programs that have helped
blacks mitigate the effects of centuries of deprivation.

Among the health and wealth creation vehicles
on the President’s
chopping block are Affirmative Action, Perkins loans, Community
Development Block Grants, empowerment and enterprise zones, Section
8 and Hope VI federal housing subsidies, minority health disparities
research, and Medicaid. Each of these policies have been important
for elevating the socio-economic condition of African Americans
in the post-Civil Rights era, yet they have been challenged, seriously
curtailed, or eliminated under the Bush Administration.

Now, despite overwhelming evidence to the contrary,
African Americans are expected to take the GOP’s newfound interest in their socio-economic
security at face value. This exercise in suspended disbelief,
however, has been made extremely difficult because of the myopic
nature of the arguments being put forth.

Twisting Black History Facts

In a staged White House event in January, President
Bush highlighted the example of an African American man whose
father passed away
at 57 before he could access Social Security retirement benefits. The
President declared Social Security unfair and lamented that the
structure of the Social Security system prevented this man from
leaving any money for his adult children.

Indeed, African Americans, especially black
men, do have shorter life spans when compared to whites. Yet
this is not an immutable fact of life or a problem somehow generated
by the Social Security
system, as the President would lead us to believe.

In reality, the shorter life expectancy of
African Americans is due to their poorer health status. According to a recent report
by the National Center for Health Statistics, the overall mortality
for African Americans was 31 percent higher than for whites in
2002. The report highlights that the age-adjusted death rates
for African Americans exceeded those for whites by 41 percent for
stroke, 30 percent for heart disease, 25 percent for cancer, and
more than 750 percent for HIV/AIDS. Homicide was the leading cause
of death among young black men, which contributed to their lower
life expectancy. These health disparities are exacerbated by a
lack of access to affordable, quality health care. Census Bureau
figures show that twenty percent of African Americans were without
health insurance in 2003 compared to only 11 percent of whites.

Ironically, President Bush could help close
these health disparities by leading the effort to change how
health care is provided in
this country. Instead, his Administration’s attempts to gloss
over the existence of minority health disparities, inattention
to policies that expand affordable, quality health care to all
Americans, and efforts to slash funding for Medicaid – a health
care program disproportionately serving African Americans – have
contributed to the negative health indicators driving the black/white
gap in life expectancy and will, ultimately, contribute to the
continued black/white gap in the number of Social Security retirement
beneficiaries.

A similar shortsightedness has been apparent
in the rationale given by privatization advocates for the black/white
disparities
in income and wealth. According to the U.S. Census Bureau, African
Americans had a real median income of $29,600 in 2003 compared
to $47,800 for whites. Similarly, a report issued by a Federal
Reserve Board economist showed that whites had more than six times
as much wealth as African Americans in 2001.

Despite strong evidence to the contrary, Social
Security privatization advocates would have us believe that this
situation is due to the
regressive 6.2 percent Social Security payroll tax, which they
claim reduces the ability of African Americans to build wealth
and save for retirement.

Sadly, many African American families do suffer from a lack of
personal assets that can supplement their income upon retirement.
This lack of private wealth, however, is not due to the Social
Security payroll tax but to the fact that many current African
American retirees are only the second and third generations away
from their slave ancestors (who were forbidden to own property
or obtain an education that could have improved their economic
circumstances) and only zero to one generations away from de-jure
segregation which also systematically limited their economic and
educational opportunities.

The income and wealth gap is complicated by
the historic marginalization of African Americans in a labor
market where they have been disproportionately
unemployed, underemployed, and/or segmented into those jobs that
do not offer pension benefits. The result is their overrepresentation
among low and moderate income workers and their diminished capacity
to accumulate or “pass on” assets such as equity-rich homes, stocks,
land, businesses, or a cash inheritance. (See , “Bamboozled:
Destruction of Social Security Would Harm Black Communities,” December
16, 2004.)

In light of these circumstances, it is perhaps
not surprising that African Americans have yet to accumulate
substantial personal
wealth that is inheritable across generations. Yet, the President
and privatization advocates have been unwilling to acknowledge
these black history facts in their efforts to pin the blame on
Social Security.

How Does the Hype Square with Reality?

Now African Americans are being led to believe
that they can overcome centuries of disadvantage by buying into
the President’s proposal
to create private individual accounts that can be invested on Wall
Street. They are being promised the possibility of earning great
wealth that can be passed on to their “heirs.” While this proposal
sounds good on its face, an understanding of the tradeoffs and
likely outcomes paints a sobering picture.

Currently Social Security helps offset the
lower earnings and higher unemployment rates of African Americans
through a progressive
benefit formula that replaces a higher percentage of a low income
person's pre-retirement wages while factoring in only the highest
35 years of earnings (and dropping away those years of low or zero
earnings).

In contrast, racial disparities in income
and unemployment would remain and even grow under a system of
individual accounts even if blacks and whites were earning
the same rate of return. This is because, unlike Social
Security, these accounts do nothing to offset periods when individuals
make very small or zero contributions to their accounts due to
lower earnings or unemployment. Describing this phenomenon,
Congressman Charlie Rangel aptly
states, “You can’t get out what you can’t put in.”

Combined with the high
risk associated with individual account investments, the outlook
for African
Americans, especially those on a low or fixed income, is dire.

The inheritance argument
is similarly misleading. Currently, Social Security provides
benefits for the surviving dependents of a worker who passes
away in the prime
of his or her working years. Because blacks have lower life
expectancies, African American widow(er)s and young surviving
children have a higher reliance on these benefits when compared
to whites. Indeed, Social Security Administration figures show
that 48 percent of African Americans receiving survivor benefits
are children.

However, under a system
of individual accounts, an African American male dying at a young
age is unlikely
to have enough funds accumulated in his account to offset the
deep cuts in Social Security benefits that are likely to accompany
these accounts. As a result, young child survivors, who are
the least able to fend for themselves, are likely to face the
possibility of extreme poverty.

So if one does not have
enough money accrued in his or her individual account, how does
one leave
an inheritance? Proponents typically cite the case of an older
(say 57 years old) African American male who dies before he is
able to receive retirement benefits. In this scenario, whatever
funds this individual was able to accrue in his individual account
would likely go to adult surviving children – who are better
able than younger surviving children to take care of themselves
when a parent passes away.

Furthermore, individuals reaching the age of retirement who want
to leave an inheritance would likely be required to use their account
funds to purchase an annuity with a life insurance feature that
could be paid out to survivors upon death. This type of policy
would be very expensive and would expose the retiree to the risk
of having very little money to live on in retirement and his heirs
with little or next to nothing.

And how do individual accounts address the
problem of African Americans’ shorter life expectancy? They don’t. For
all of the hullabaloo being made about their higher death rates,
private individual
accounts include no structural features
that make it easier for African American men to access retirement
benefits.

Conclusion

The President is right to focus the nation
on the need to promote ownership and wealth creation in the United
States. Yet he is
wrong to attempt to execute his plan by undermining Social Security. If
the President really cares about the welfare of African Americans,
he would seek to close health disparities and give people an opportunity
to earn extra money to put on top of Social Security’s guarantee.